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Key Tech Inches Closer to 52-wk High - Analyst Blog

Shares of
Key Technology, Inc
. (
KTEC
) have been moving north over the past few days and it gained 4%
to close at $14.46 on Oct 7. The 4% gain has now taken the stock
closer to its 52-week high of $16.40. In fact, the stock had
touched an intra-day high of $15.40 yesterday.

Possible Driver

Volume traded was 3,263 yesterday, higher than the stock's last
10-day average volume of 2,467 shares. What possibly could have
triggered the 4% increase yesterday is a report from Research and
Markets regarding Global Trends & Forecasts to 2018 for the
Processed Meat & Meat Processing Equipment Market.

As per the report, processed meat is gaining popularity and its
global market is poised to grow at a CAGR of 14.3% from 2013 to
2018. Key Technology is a key player in this area, providing
easy-to-sanitize inspection, conveying, feeding, metering, and
other poultry processing equipment that help cut labor expenses,
meet throughput requirements, as well as achieve product safety
standards that meet USDA and customers' demand. Thus, the company
will grow in tandem with the increased demand in the meat market.

Other Fundamentals

Nonetheless, there are certain strong fundamentals that may evoke
a positive sentiment about the company. Among the positives - the
company reported significant year-on-year earnings improvement in
third quarter, backlog looks promising and it closed a key
acquisition. Moreover, the Zacks Consensus Estimate for 2013
stands at 58 cents per share, translating into an impressive 621%
annual growth.

The stock has amassed a year-to-date return of roughly 38.4%.
Based on the current price, this designer and manufacturer
of automated solutions for food processing, industrial and
pharmaceutical markets is trading at a forward P/E of 18.46x, a
premium of 15% to the peer group average of 15.99x.

Quarterly Results

Key Technology had reported its third quarter financial results
on July 25. Earnings increased more than fourfold to 23 cents per
share from 5 cents in the year-ago quarter with an earnings
surprise of 9.52%.

After bearing a loss in the first quarter, Key Technology
successfully turned around and reported solid earnings beats in
the second and third quarters of 2013. Margins were aided by
improved product mix and more efficient plant utilization.

Key Technology ended the second quarter with a sound backlog of
$41.7 million compared with $24.2 million one year ago. New
orders received during the quarter were $30.9 million, up from
$24.9 million in the corresponding period last year. Orders were
reported to be strong, particularly in the potato market as well
as the dried fruit and nut markets.

Visys Acquisition

Key Technology completed the acquisition of Belgium-based Visys
NV, a supplier of innovative digital sorters, in Feb 2013. The
total value of the deal was approximately $21 million. The
transaction is expected to be accretive within the first 12
months. The acquisition will increase Key Technology's share in
its core markets, help it to expand into new high-potential
markets, and accelerate its development of next-generation
sorting technologies.

Conclusion

Though we carry a Zacks Rank #3 (Hold) on the stock, the company
has been showing some positive trends and impressive earnings
results (scheduled next month) may further aid the stock's
momentum.

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